Get Out of Debt

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Get Out of Debt
Get Out of Debt

If you’re reading this then chances are that you are in some serious debt.  When it comes to debt this is a no judgment zone because almost everyone has been in debt at some point.  Like most people, I made some bad financial decisions as a young adult that put me into debt and forced to take a hard look at what my priorities needed to be.  Once my wife and I finally decided to make some changes, we were able to become debt free in less than 18 months!  I can tell you with total certainty that the feeling you get that first month where you don’t have to make any more loan payments will be worth all the sacrifices that you have made.


For most of you the only real help you need is motivation and a plan.  Others of you may need help from a debt consolidation agency.


8 Steps to Get Out of Debt


Get Out Debt Free
Get Out Debt Free

1.  Acknowledge what happened and fix it.  Before we can have any hope of getting out of debt we need to recognize how we got into this situation in the first place.  So how did this happen?  The answer is simple… we got here by spending more money than we bring in.  Now need to commit to changing our circumstances, which means that we will not take on any more debt… no matter what.  So get all your credit cards together and cut them up.  This includes anything that will allow you to get into more debt.  If you want to keep one credit card for emergencies then pick one with a small credit limit (preferably under $500) and keep it at the house not in your wallet.



2.  Know where your money is going and associate a dollar amount with Step #1.  For one month record all your spending.  This goes for everything from mortgage to that candy bar you get every day during your morning break.  From Step #1 we acknowledged that we are spending more than we are making.  Now we need to see exactly what we are spending our money on.  Compare your monthly expenses to your income to see exactly how much you are living beyond your means.


3.  Categorize your spending.  Divide your list from Step #2 into two categories:  fixed and variable expenses.


Fixed:  Set amount each month that cannot easily be changed.


Loan Payments


Basic Phone Service

Savings Contributions



Variable:  Spending amount that can easily be changed from month to month.





Membership Fees (gym etc.)

Phone Service Features


When you categorize your expenses don’t be too quick to put something like cable, phone bills, or gym memberships into the fixed category.  Even if your phone service is a “must have,” that doesn’t mean that you need unlimited data or texts.  Break down your bills to the lowest level that you can survive on, then you can put it into the fixed expense category.  You can live without cable and a gym membership so keep those in the variable category.



Get Rid of Debt
Get Rid of Debt

4.  Create a Budget.  You now have your income calculated and you expenses categorized so you can create a budget to bring your spending to equal your earnings.  Don’t go too specific here, it is just an outline to get you ready to make specific cuts.  In this budget you need to set aside money for additional loan payments beyond the minimum.





5.  Start Cutting.  I recommend that you look closely at your variable expenses, not the fixed, when you decide what to cut.  Don’t waste a lot of emotional energy trying to eliminate things that you have little control over.   Step #4 gave us our general numbers, now its time to get into specifics.  Some things will be difficult because they have been the norm for so long but you cannot get out of debt if you are not willing to own up to the fact that you have been living beyond your means.  It will be best to look at getting out of debt like running a marathon, not a sprint.  Don’t go overboard on cutting expenses to levels that you cannot maintain.  You run the risk of doing to your budget what you do to your fad diet; doing great in the short-term but quickly resorting to your old ways.


6.  Eliminate the debts.  There are two primary ways to go about deciding which debts to eliminate first.  We will use the following scenario to illustrate the difference between the two.  Let’s say that you have the following debts:


Debt Streams


Method #1:  Pay off the smallest debt first:  You will make the minimum payments on all debts except the Visa card.  Use the additional loan payment amount of $400 to quickly pay the Visa card.  Once you pay this off, you will apply an additional $504 ($104 for the Visa + $400 additional loan payment) toward the next smallest loan amount which is the car payment.  Once the car is paid off you move to the MasterCard, then to the student loan.

Method #2:  Pay off the highest rate first:  The order that you make payments in the scenario will be to apply the additional loan amount to the Visa.  Once that is paid off then you apply the additional amount to the MasterCard, then to the car, then the student loan.



Get Out of Debt
Get Out of Debt

There are other approaches to paying off debt but these are the two most common.  Each of these approaches has its own benefits.  I prefer Method #1 because of the psychological impact it had for me as I watched all these different creditors disappear within months.  Eliminating debt streams will give your family a morale boost when you see quick results.


Method #2 will actually save you more money in the long run so some people prefer this one.  The best approach is the one that works for you.



7.  Don’t give up.  You will be faced with situations where you want to take out another loan, use that credit card, or give up completely.  You may feel that the changes that you made to get out of debt have cost you for freedom to buy what you want, when you want to.  I promise you that when you have your debts paid off you will really understand the feeling of financial freedom and it is so much better than the freedom to go into debt to get what you want, but cannot afford.


8.  Share your successes.  For some reason in our society people like to keep financial difficulties to themselves.  Part of my family’s ability to maintain a debt free life is sharing with others how great it is.  You will be surprised with how people open up to you with their circumstances.  Some people, who you thought were financially secure, are actually in bad shape when it comes to debt.  Now it’s your turn to share your story and help these people out.


Thank you for reading this post on how to get out of debt.  Please leave any comments below.

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